Concrete Analysis | Outlook for Tokyo’s property market positive as it continues to benefit from investments ahead of the 2020 Olympics
- Although there are some headwinds facing Tokyo’s commercial real estate, there is an opportunity to focus on logistics and residential buildings for income durability and rental uplift
Tokyo, the world’s largest metropolitan city, is one of the most interesting commercial real estate markets, despite being arguably one of the most difficult to transact.
The positive drivers underlining core investment interests remain: real estate fundamentals, as well as robust capital market sentiment and financial conditions. The city will continue to benefit from the boost to domestic demand in the run up to the 2020 Olympics and associated infrastructure investment and in turn, underscoring the already positive occupier outlook.
Short-term rates are likely to stay accommodating, allowing investors to lock in low fixed financing costs and attractive cash-on-cash returns. However, the near-term macro landscape has become increasingly uncertain and uneven. The question then is, will the music stop playing for the Tokyo property market before the upcoming Olympics?
The Japanese economy hit several air pockets in 2018 including the global slowdown partly caused by the US-China trade war, as well as downward trending corporate and consumer sentiment from the stock market slump. The external environment will continue to pose headwinds, noting the recent markdowns in global growth forecasts, especially in the US and China – two of Japan’s biggest car export markets.
The consumption tax rate increase will also challenge the consumer sector’s resilience. That said, there is still underlying strength with data pointing to an improvement in real activity momentum. Working towards the Olympics, infrastructure spending and rising tourism have also underpinned economic growth for a number of years.